Margaret Company reported the following information for the current year:
Net sales $2,700,000
Purchases $1,551,000
Beginning Inventory $275,000
Ending Inventory $145,000
Cost of Goods Sold 45% of sales
Industry Averages available are:
Inventory Turnover 5.29
Gross Profit Percentage 28%
How do the inventory turnover and gross profit percentage for Margaret Company compare to the industry averages for the same ratios? (Round inventory turnover to two decimal places. Round gross profit percentage to the nearest percent.)
A) Margaret Company has superior gross profit percentage and inventory turnover.
B) Margaret Company has superior gross profit percentage and inferior inventory turnover.
C) Margaret Company has inferior gross profit percentage and superior inventory turnover.
D) Margaret Company has inferior gross profit percentage and inventory turnover.
A
Explanation: A) Average inventory = ($275,000 + $145,000 ) ÷ 2 = $210,000
Cost of Goods Sold = 45% × $2,700,000 = $1,215,000
Inventory turnover = $1,215,000 ÷ $210,000 = 5.79
Gross Profit = 55% × $2,700,000 = $1,485,000
Gross Profit Percentage = $1,485,000 ÷ $2,700,000 = 55%
Margaret's ratios for inventory turnover and gross profit percentage exceed industry averages.
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